Regulations preventing the use of cancellation schemes of arrangement in takeovers came into force on 4 March 2015. This is significant as, in recent years, over half of UK takeovers have been by cancellation scheme. Cancellation schemes involved cancelling the target's shares through a reduction of capital and reissuing new shares in the target to the bidder, so avoiding the stamp duty that would usually arise on a transfer of shares. The Chancellor's Autumn Statement announced the end of cancellation schemes as an anti-avoidance measure.
The Companies Act 2006 now prevents a company from reducing its share capital as part of a scheme, the purpose of which is the acquisition of all the shares, or all the shares in a class, of the company. There is a carve-out to allow a scheme to insert a new holding company into a group. However, all or substantially all the members of the company must become members of the new holding company and their shareholdings must remain in substantially the same proportions. It will therefore still be possible to use cancellation schemes in transactions such as demergers. Schemes of arrangement in takeovers will still be possible, provided they are transfer schemes.
The Companies Act 2006 (Amendment of Part 17) Regulations 2015
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
